The SCI is a French company dedicated to the ownership and management of real estate assets. It is a non-trading, tax-transparent company (1), which makes it possible to organize the ownership of a property by several partners. The associates can anticipate major decisions (sale of the property, major renovation work, restructuring, etc.) through majority votes at the general meeting. The aim here is to avoid joint ownership situation, where decisions are taken by unanimous vote, which can lead to deadlock if one of the participants opposes the resolution.
French SCI: to what purpose?
The SCI is a structure dedicated to carrying out civil real estate activities. It can be used for :
- Renting unfurnished properties
- Free use of the property by its associates (without this leading to the declaration of a benefit in kind).
Caution: The SCI structure is not adapted for long-term or seasonal furnished rental or any other commercial activity.
What are the risks? Being subject to corporation tax, and therefore losing the tax transparency regime. This is particularly penalizing, as you lose the application of the general “real estate capital gains” regime when you resell the property, which gives the seller discounts and allowances for length of ownership, leading to full exemption after 30 years.
On the other hand, when the SCI is subject to corporation tax, the capital gain is calculated as the difference between the sale price and the net book value of the property after depreciation (thus increasing the tax base), and does not benefit from any discount or allowance.
French SCI: What are the tax implications?
The SCI is a pass-through entity, meaning that it is not subject to corporation tax (unless you expressly opt out).
If the SCI has a rental activity:
Income from its rental activity is shared and taxed through the partners.
- When the partners are individuals: income is determined according to the tax rules governing “property income”. In this case, result is subject to personal income tax.
- When partners are trading companies subject to corporation tax, income is calculated according to the “commercial” tax rules. In this case, result is subject to corporation tax.
If the SCI reserves the property for the exclusive use of the individual partners:
There is no income to declare, and therefore no tax to pay.
What are the SCI’s reporting obligations?
To set up a tax account on impots.gouv.fr
Once registered, the SCI will be assigned a registration number known as the “SIRET” number. This number will be required to create a tax account on the French tax authorities’ website “impots.gouv.fr“. The tax account must be set up in the “Votre espace professionnel” section. This tax account will enable you to consult the local taxes established in the name of the SCI (property tax), communicate with the tax center, track your tax returns, etc…
To fill in a 2072 annual income statement
If the SCI is involved in rental activities, a 2072 tax return must be filed each year. As of January 1st 2020, this tax return must be filed by electronic means.
If the property held through the SCI is reserved for the exclusive use of its partners, filing the 2072 return is only compulsory for the first tax year, and becomes optional thereafter.
To submit the declaration of occupancy
Following the reform of the taxe d’habitation (housing tax), which grants a total exemption to occupants of a property residing there as their “principal residence”, all owners of property in France are required to file a declaration of occupancy. When the property is held through a SCI, this formality must be carried out on the impots.gouv.fr space opened in the name of the SCI. Owners must indicate the use to which the property is put: is it rented out? Is it occupied as a primary residence? Is it occupied as a secondary residence? And indicate the identity of the occupant.
French SCI: do I need to keep accounts?
SCIs are not required to keep accounts, especially when the property they own is not rented out.
Although optional, bookkeeping offers several advantages:
- Accounting helps you keep better track of property expenses
- Accounting allows you to track and trace work carried out on the property. As a reminder, when the property is resold, it will be possible to deduct expenditure on construction, reconstruction, extension and improvements carried out by the seller. It would be a shame to lose track of these expenses!
- Partners do not always contribute equally to company expenses. Keeping accounts makes it possible to trace each partner’s contributions precisely, so that they can be used against third parties when necessary (tax inspection, divorce and division of assets, inheritance, etc.).
- Real estate wealth tax (IFI): keeping SCI accounts is a useful way of monitoring the value of taxpayers’ real estate assets. The accounts can be used to track events likely to affect the property’s market value (works), as well as deductible debts such as mortgages.
(1) Unless you have expressly opted for the corporation tax regime
How can we help you ?
The missions we can offer you:
Drafting of a tax study: with simulation of your tax obligations in France ; a key solution to secure your installation in France in order to avoid unfortunate situations, such as delays or errors in your tax returns.
Follow-up of your tax returns in France: income tax, real estate wealth tax, rental income